The signing of the Berne Financial Services Agreement in December was a key milestone in the history of bilateral agreements.
The National Security and Investment Act 2021 established the UK’s investment screening regime to prevent investments in UK assets from posing national security risks. The Act requires that investments into one of 17 sensitive sectors are reported to the Investment Security Unit (ISU) which sits in the Cabinet Office. The Act also encourages investors to report potentially sensitive investments to the ISU on a voluntary basis. If investments are not reported voluntarily, the government has powers to review and unwind them up to five years after the investment was made.
In July 2022, we urged the government to provide more guidance on how the investment screening system was working to reassure international investors that they remain welcome. Attracting more international investment, especially in strategic sectors like green infrastructure, life sciences, and technology, is critical to ensuring growth and creating high-skilled jobs across the UK.
We are pleased that the government adopted some of our recommendations by:
A year after the Act came into force, and given these reforms, we have updated our recommendations on how government can best administer the UK’s investment screening system.
Internal corporate structuring
It is hard for businesses undergoing corporate restructuring to know whether they are “acquirers” under the Act. Clearer guidance on whether such acquisitions are applicable would be helpful.
Clearer guidance on the value threshold below which investments are unlikely to be subject to review should be provided to help facilitate smaller value investments.
The Act states that investments in the 17 sensitive sectors must be reported if they have a “nexus” with the UK even if not in the UK. It would be helpful if officials could clarify the definition of “nexus” and whether the Act’s extraterritorial provisions apply to voluntary transactions too. It would also be helpful if the government could publish data on the number of extraterritorial screenings.
Voting rights thresholds
It would be helpful if the government could provide guidance on how the investment screening regime applies to situations in which an investor looks set to acquire sufficient voting rights in a company to block a resolution at a shareholder meeting.
In special situations such as insolvency, receivers often need to act quickly to secure new investments to save a business. 30 working days might be too long to wait for investment screening. Receivers should have the option of applying to the ISU to expedite the screening process.
Outcomes and penalties
It would be helpful if the government could provide more granular data on the outcomes that result after investments are called-in for review , and on the conditions imposed on investors, by publishing more details in the summary of final orders. Furthermore, Annual Reports on the Act should include data on the penalties that are being imposed on businesses that mistakenly failed to submit their investment in a mandatory review sector for investment screening.
Definitions of mandatory sectors
It is sometimes unclear if proposed investments are within scope of the mandatory notification regime. It would be helpful if government could clarify some complex sector definitions in the Act.
Regular communication between officials and investors:
It would be helpful if officials could provide as much information as possible on why a given investment has been called-in, so investors can understand how to address any concerns and propose proportionate remedies. It would be helpful for investors to also see more detailed information about particular investments being reviewed, alongside data on the number of investments being reviewed in the annual report. One way of improving communication between the parties involved in a review might be to establish a key point of contact following a “call-in” and allowing for more regular engagement between officials and investors during the process.
Maintain a national security driven approach
It is vital that the government clearly signals that it is only using its screening powers to review investments solely for national security purposes. The government can reassure investors that the Act is being used purely for national security purposes, and not as a protectionist tool or to advance industrial policy, by providing investors with clearer guidance about how it is implementing the Act.
Establishing a tiered system
Under the Act, certain types of investors may be exempted from notification requirements. If the government is considering establishing a tiered investment screening system, industry would welcome an opportunity to comment on any proposals to do so and to provide feedback on any proposed guidance on how a tiered system might operate.
Under the Act, there is a power to add or remove sectors subject to mandatory screening. If the government is considering changing its approach to which sectors require mandatory screening, industry would welcome an opportunity to comment on any proposals to do so and to provide feedback on any proposed guidance on the topic.